2007 (3) TMI 201 - AT - Service Tax

Manufacturing unit providing taxable output services can use Cenvat Credit to pay Service Tax under Cenvat Credit Rules, 2004

CESTAT held that a manufacturing unit which also provides taxable output services may utilize Cenvat credit to discharge its Service Tax liability. ... Cenvat credit utilisation - output service provider - deeming provision of Section 68(2) read with Rule 2(d) of the Service Tax Rules, 1994 - scope of input/capital goods for manufacturer vis-a -vis service provider - CBEC Excise Manual - restrictions on utilisation (Para 24.2)Cenvat credit utilisation - output service provider - CBEC Excise Manual - restrictions on utilisation (Para 24.2) - Whether the appellant (Revenue) is entitled to deny the respondents Cenvat credit of manufacturing activity for utilisation towards payment of Service Tax despite the respondents being liable as deemed service providers under Section 68(2) and Rule 2(d). - HELD THAT: - The Tribunal examined the Cenvat Credit Rules, 2004 and the CBEC Excise Manual (paras reproduced including 24.2) and observed that the Rules define an output service to include a person liable to pay service tax and that the Manual expressly lists permissible utilizations of Cenvat credit, including payment of service tax on any output service. While the Revenue contended that only the actual service provider (the transporter) could claim the credit and that inputs/capital goods of a manufacturer cannot be treated as inputs/capital goods for a service provider, the Tribunal found no rule or restriction in the Cenvat Credit Rules or the Manual that prevents a manufacturing unit from utilising Cenvat credit taken for manufacturing activity to discharge service tax liability when the unit is liable to pay service tax by virtue of the deeming provision. In light of the statutory definitions and the utilisation provisions in the Manual, the Tribunal found the Commissioner (Appeals) to be correct in allowing utilisation of the manufacturing Cenvat credit towards service tax liability.The impugned order upholding the respondents' entitlement to use Cenvat credit of manufacturing activity for payment of Service Tax is affirmed and the Revenue's appeal is dismissed.Final Conclusion: Appeal dismissed; respondents entitled to utilise Cenvat credit attributable to their manufacturing activity for discharge of Service Tax liability in view of the Cenvat Credit Rules, 2004 and the CBEC Manual (para 24.2). Issues:- Eligibility of output service provider to avail Cenvat credit for utilization towards payment of Service Tax.- Interpretation of Cenvat Credit Rules, 2004 regarding dual role of manufacturer and service provider.- Restrictions on utilization of Cenvat credit under CBEC Excise Manual.Analysis:1. Eligibility of Output Service Provider for Cenvat Credit:The appeal challenged the Commissioner (Appeals) order allowing the respondents, engaged in manufacturing and output services, to avail Cenvat credit for payment of Service Tax. The Revenue contended that as the actual service provider is the transporter, the party deemed as the service provider is not entitled to Cenvat credit. The argument was based on the distinction between the actual service provider and the party deemed as the service provider under Section 68(2) of the Finance Act, 1994.2. Interpretation of Cenvat Credit Rules for Dual Role Entities:The party in question had a dual role as a manufacturer and service provider due to deeming provisions of the Act. The Revenue argued that while the Cenvat Credit Rules, 2004 apply to both categories, the definitions of 'inputs', 'capital goods', and 'input service' differ for manufacturers and service providers. The contention was that the Cenvat credit of manufacturing activity cannot be used for discharging Service Tax liability as a deemed service provider.3. Restrictions on Utilization of Cenvat Credit:The judgment referred to the CBEC Excise Manual, highlighting restrictions on the utilization of Cenvat credit for various duties. The manual specified that certain duties could only be utilized for payment of specific duties and not for Service Tax on output services. However, it was noted that there were no restrictions on the utilization of credit for duties other than those explicitly mentioned.In conclusion, the Vice President, relying on the Cenvat Credit Rules and the absence of restrictions for utilizing Cenvat credit by manufacturing units for Service Tax payment as service providers, found no fault in the Commissioner (Appeals) order. Consequently, the appeal was dismissed, affirming the eligibility of the output service provider to avail Cenvat credit for Service Tax payment.